Discusses key economic indicators and trade statistics, which countries are dominant in the market, and other issues that affect trade.
The Government of Peru’s (GOP’s) focus on sound fiscal management and macroeconomic fundamentals contributed to the country’s region-leading economic growth since 2002 and reduced poverty rates from 52% in 2005 to 25% in 2021. However, the COVID-19 pandemic caused a severe economic contraction of over 11 percent in 2020. Nevertheless, Peru recovered with 13.3% GDP growth in 2021. In addition, recent political instability (Peru has had four presidents since 2020) restricts near-term growth, with forecasts calling for approximately 3% GDP growth in 2022 and 3% in 2023. COVID-19 health costs and an economic stimulus package somewhat strained Peru’s fiscal account, but the deficit stabilized to 2.6% of GDP in 2021. Nevertheless, the spending surge continues to impact Peru’s debt, which increased from 26.8% of GDP in 2019 to 36% in 2021. Net international reserves remain robust at $78.4 billion. Global price pressures moved inflation higher, to 4% in 2021, a significant spike from the 1.8% in 2020. Inflation continued in 2022, with Peru’s 12-month rate through May reaching 8.8%.
Peru fosters an open investment environment, including strong contract and property rights protections. However, prospective investors would benefit from seeking local legal counsel to navigate Peru’s complex bureaucracy. Private sector investment made up over two-thirds of Peru’s total investment in 2021. Peru is well integrated into the global economy, including with the United States through the United States-Peru Trade Promotion Agreement (PTPA), which entered into force in 2009. U.S. goods and services trade to Peru in 2021 totaled an estimated $16.8 billion in 2021, up from $9.1 billion in 2009, the year the PTPA entered into force. In 2021, Peru’s imports from the United States were $9.5 billion.
Under the PTPA, U.S. consumer and industrial goods exports to Peru are no longer subject to tariffs. The PTPA eliminated tariffs on almost 90% of U.S. agricultural product exports, with the remaining tariffs to be phased out by 2026. Most imports (93% of codes) are also subject to an 18% value-added tax (VAT), as are domestically produced goods. There are no quantitative import restrictions. The PTPA also established a secure, predictable legal framework for U.S. investors operating in Peru, including intellectual property protections.
Peruvian President Pedro Castillo took office in July 2021, winning election by a margin of less than half a percentage point in a nationally divisive campaign. His Free Peru party (from which he resigned in 2022) and its allies do not have a majority in congress, and the relationship between the two remains fraught. The Free Peru party describes itself as “a left-wing socialist organization” that embraces Marxism, Leninism, and a Peruvian revolutionary doctrine, known as Mariáteguism. President Castillo, however, has often said that he opposes communism, distancing himself from the far left in his former party. Many associated trade and economic policies continue to evolve, and the local business community remains concerned about the potential negative impacts on investment, operations, and the overall economy.